Derek Pain: 'My stock squad is lean and mean but it badly needs reinforcements'

With his selling activity during the quarter and the highly profitable takeover of Essenden, Derek Pain's portfolio has been reduced to 11 constituents

The summertime stock market retreat has knocked the No Pain, No Gain portfolio from its all-time peak. With the FTSE 100 falling around 700 points since my earlier review, some suffering was inevitable. But the latest valuation of £148,000 – although down from the high above £150,000 – is a reasonable performance considering the multitude of vicissitudes that have hit investors.

My two star constituents have had contrasting fortunes. Whereas Booker, the cash-and-carry chain, is near its best-ever level, leisure group Whitbread has endured a rather indifferent time.

Booker has been helped by the £40m take over of the Budgens/Londis distribution and retail businesses. Whitbread, on the other hand, has felt the weight of the new living wage to be introduced by the Government.

Both constituents produced relatively impressive sales, although it was possible to detect each had suffered something of a growth slowdown.

Booker has acquired a justified reputation for being able to turn round loss-making operations. It has its work cut out with Budgens/Londis, which is heavily in the red. But adding them to its existing network should eventually produce significant results.

Avation, the aircraft leaser, is another that reported during my three-week holiday. Although revenue rose 17 per cent, pre-tax profits were down to $15.5m (£10m) from $17.2m; the dividend has been lifted 49 per cent to three cents a share. Meanwhile Safestay, the upmarket hostel chain, suffered an interim loss of £249,000 against a £137,000 profit last time. Expansion influenced both results.

The other notable event during my absence was provided by SnackTime, the vending machine group and dog of the portfolio. It has, once again, suspended its share quote because of problems producing its accounts. The freeze price is 8p.

During the past quarter, two shares were sold: Mears, the support services group, at a profit, but Stock Spirits, the Eastern European drinks business, at a loss. Another departure this year, Alkane Energy, attracted a 36p takeover bid. I sold at 21.5p after the price had fallen briefly below my stop-loss level of 20p. The portfolio paid 40.75p. There are suggestions the group could get a counter offer.

Before the bid, from Balfour Beatty, Alkane announced interim profits down from £7.3m to £1.4m.

With my selling activity during the quarter and the highly profitable takeover of Essenden, the portfolio has been reduced to 11 constituents. Clearly it needs reinforcements. With the market so uncertain, a strong case can be made for long-term investors to take advantage of lower share prices. Still, there is no rush; things could deteriorate further. It is better to wait and see before venturing into what has become a volatile arena.

Among those I am tempted to enlist is Serco, the troubled services group. I see that Kean Marden, an analyst at Jefferies, has a 157p target price against the present 106p. Before the group hit problems, its shares topped 600p. It could be a long haul but ultimately successful.

I have a number of other candidates under review, including Distil, the drinks group I have discussed in the past, and the grandly titled Satellite Solutions Worldwide. I am keen to expand the portfolio much nearer my favoured strength of 16.